StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Formula Used and Calculation of Real GDP - Essay Example

Cite this document
Summary
The paper "Formula Used and Calculation of Real GDP" states that businesses with lower profits will begin to reduce their workforce, which will result in households with either lower incomes or the expectation of lower incomes, both of which will further depress consumption and therefore GDP…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER94.4% of users find it useful
Formula Used and Calculation of Real GDP
Read Text Preview

Extract of sample "Formula Used and Calculation of Real GDP"

Over the last few years, although there are quarterly fluctuations, there is a general downward GDP trend. Looking at annual real GDP, one can see a downward trend from 2.7% in 2006 to a slightly lower 2.1% in 2007 to the almost flat growth of .4% in 2008. Although 2009 is not yet over, the average of the first 3 quarters shows real GDP to have shrunk, with a rate of –1.4%. However, there is the suggestion that the GDP downward trend has recently reversed and is increasing somewhat since real quarterly GDP growth reached its minimum point of –6.4% during the first quarter of 2009 and went up both in the second and third quarters of 2009. The third quarter went into positive territory at 2.8% for the first time since the second quarter of 2008.

One event that has likely contributed to the general downward trend in real GDP is the decline in housing prices or the bursting of the housing bubble. According to the Case-Shiller housing index (Standard and Poor’s, 2009), housing prices peaked in the second quarter of 2006 and declined thereafter until the first quarter of 2009. One direct consequence of declining home values is a decline in household wealth, which will likely lead consumers to spend less since having less money will translate to spending less money. Furthermore, if declining home values lead to default and foreclosures, those consumers will have even less money available for spending. Given that according to the 2008 real GDP figures, consumption is 70% of GDP (U.S. Department of Commerce, 2009), lower consumption will mean lower GDP.
Another event that likely explains some of the GDP movement is the financial meltdown that occurred in September 2008, with the government bailouts of AIG, Freddie Mac, Fannie Mae, and the bankruptcy of Lehman Brothers. With the loss of confidence in the stability of financial markets, the stock market was at 11,544 at the end of August 2008 fell to 10,918 on September 15, 2008, and was at 8,451 by October 10, 2008 (Dow Jones, 2009). This decline in stock values not only reduces household wealth, which adversely affects consumer spending but also gives consumers less confidence in the economy. And consumers will tend to spend less if they are less optimistic about the economy (Ludvigson, 2004). The subsequent two quarters (fourth quarter 2008 and first quarter 2009) following the financial meltdown indeed had especially low GDP growth numbers (-5.4% and –6.4%). Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Real GDP Essay Example | Topics and Well Written Essays - 500 words”, n.d.)
Real GDP Essay Example | Topics and Well Written Essays - 500 words. Retrieved from https://studentshare.org/finance-accounting/1501508-real-gdp
(Real GDP Essay Example | Topics and Well Written Essays - 500 Words)
Real GDP Essay Example | Topics and Well Written Essays - 500 Words. https://studentshare.org/finance-accounting/1501508-real-gdp.
“Real GDP Essay Example | Topics and Well Written Essays - 500 Words”, n.d. https://studentshare.org/finance-accounting/1501508-real-gdp.
  • Cited: 0 times

CHECK THESE SAMPLES OF Formula Used and Calculation of Real GDP

Analysis of the Value at Risk (VaR) of a Portfolio of 4 Shares

VaR is a calculation of market risk.... Considering merely, the most frequently used VaR models suppose that the price of resources in the financial markets go behind a standard distribution.... There is no one VaR integer for a single portfolio, as diverse methodologies used for scheming VaR produced dissimilar results....
18 Pages (4500 words) Essay

GDP Is Not Enough

This resarch paper "gdp Is Not Enough" presents gdp that is just some of the problems associated with gdp measure.... Obviously, the figure calculated as a gdp measure should therefore never be relied upon as a precise economic growth assessment.... As a measure of economic activity, gdp cannot be equaled.... This paper provides an annotated bibliography on the topic of gdp is not enough (Adam, 2009)....
8 Pages (2000 words) Research Paper

Gross Domestic Production of a Country

GDP is classified as nominal GDP and real gdp, Lipsey (2007) states that Nominal GDP is calculated using current period prices whereby the value of goods in an economy is calculated using the same year prices and that real gdp on the other hand will determine the value of goods and services in the economy using a selected year price.... owever calculation of GDP using the above three methods should be the same, the expenditure method is commonly used in many countries to calculate GDP due to the availability of data, the following is an analysis of changes in GDP due to an increase in production and change in price....
5 Pages (1250 words) Essay

Comments on GDP and Savings Rate

This essay "Comments on gdp and Savings Rate" discusses gdp which can certainly reflect the measure of economic developments happening in a country.... There are a lot of economic indicators like unpaid work and the distance between the rich and the poor etc which are omitted while calculating the gdp.... In short, gdp growth can certainly give us the direction in which the country is progressing, but it cannot accurately predict the living standards of the people....
6 Pages (1500 words) Essay

GDP - Gross Domestic Product

Nominal GDP is the GDP according to current year prices while real gdp accounts for the effect of inflation on prices and is therefore also known as inflation adjusted GDP.... By the use of a base year and elimination of effects due to price changes, real gdp allows useful comparisons to be made regarding the production of goods and services in an economy.... An individual's health, diet, achievements, mobility and participation in society are all essential sources of contentment that are not included in calculation of GDP....
6 Pages (1500 words) Essay

Markets and the Economy

According to Jhingan (1986) when an economy under goes recession, profit margin of businesses start declining causing low corporate taxes and a decline in employment rate The decline in taxes decelerates the government revenue against its expenditure which finally cause.... ... ... This mechanism is summarized underneath: ...
4 Pages (1000 words) Term Paper

Data Execercise for Priciples of Macroeconomics

This results in nominal GDP often appearing higher than real gdp.... real gdp values are adjusted to account for the price differences between the periods, while nominal GDP The real gdp between these two periods reduces by 3.... Inflation and changes in prices of products causes a significant difference between nominal and real gdp percentages (Bea.... With nominal GDP and real gdp values, one can derive an index of the price level in the year....
4 Pages (1000 words) Assignment

What Is the True Significance of WACC for a Company

The weighted average cost of capital (WAAC) of a specific firm is the calculation of the company's total capital costs, where each of the sources of financing is proportionally weighted.... Generally, all of a company's real assets are purchased by either debt or equity sources of financing (Besley & Brigham, 2000)....
9 Pages (2250 words) Case Study
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us